Global sanctions compliance and enforcement and how to navigate them

30 Apr 2019

Global

Due Diligence

Henry Smith

Sanctions compliance and enforcement

Today, companies have to navigate a complex global sanctions landscape. Two key trends which have emerged in recent months are an increase in targeted sanctions to achieve strategic geopolitical goals and a number of enforcement cases that indicate higher standards for sanctions-related due diligence. Given ongoing global economic and political instability, companies need to assess and enhance their compliance structures. Henry Smith, Partner at Control Risks recently sat down with Financier Worldwide and a panel of experts to discuss the evolving sanctions landscape and how companies can navigate it.

Control Risks has unparalleled expertise in matters of geopolitical influence and the impact they have on building secure, resilient, and compliant organizations. If you have questions about how these sanctions regimes impact your compliance program or business more broadly, we’d be happy to connect you with one of our experts.

Could you provide an overview of today’s global sanctions landscape? What key developments and trends have unfolded in recent months?

Smith: Geostrategic competition makes UN Security Council consensus harder to achieve, and enforcement increasingly reflects geopolitical agendas. The US has expanded the scope and number of sanctions designations, and it is increasingly weaponising them, particularly secondary sanctions, for foreign policy aims. There is a divergence, though, between the executive and Congress about when to use sanctions, and what different country-specific sanctions attempt to achieve. The EU is taking steps to insulate European trade with very important markets, namely Iran and Russia, from US sanctions, and to increase its economic independence. Differences between the US and its traditional allies in the EU are making companies’ decisions about whether to comply with different sanctions regimes more complicated. Country agnostic, extraterritorial sanctions regimes are emerging. ‘Magnitsky’ sanctions have been adopted in the US, UK and Canada, and are under consideration in the EU. These target individuals associated with human rights abuses and corruption.

Are any industries or sectors at greater risk of breaching sanctions? If so, what factors are behind this heightened exposure?

Smith: There are certain sectors that are likely to pose more sanctions risks than others, due to their economic and political importance, as well as their reliance on the international financial system. Defence, energy and financial services stand out. Beyond these sanctions, business models make the greatest difference to sanctions exposure. If sales and route to market are reliant on intermediaries, such as agents and distributors, then it can be difficult for a compliance team to pre-empt, monitor and detect potential sanctions violations, including diversion, fraud and other integrity risks. If an organisation has a large population of third parties that are geographically dispersed, then this is very challenging. This means that companies in consumer goods and healthcare, despite not being sectors that are explicitly sanctioned, also need to think about sanctions risk exposure. Compliance teams need to take it upon themselves to understand their business model and to conduct appropriate risk assessments of their supply chains. This is clear from recent OFAC enforcement cases.